Tax Type
Retail Sales and Use Tax
Description
Transportation equipment; Vehicles; Purchases by contract carrier taxable
Topic
Taxability of Persons and Transactions
Date Issued
05-16-1997
May 16, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******
This is in response to your letter in which you seek correction of various sales and use tax assessments. These assessments are issued to: (1) ****** for the period May 1993 through July 1996; (2) *******or the period August 1990 through May 1996; and (3) ****** for the period August 1990 through July 1996, all doing business as ********(the "Taxpayer").
FACTS
The Taxpayer operates primarily as a motor vehicle carrier of household goods. In addition, the Taxpayer relocates businesses and provides record and personal storage facilities. A significant portion of the assessment is based on the auditor's determination that the Taxpayer's transportation services were in part provided outside of its common carrier authority.
The Taxpayer protests the assessments and maintains that sales tax has never been applied to any business which provides services as a common carrier in interstate commerce. The Taxpayer further maintains that it is an agent for an interstate common carrier and also holds an intrastate Certificate of Public Use and Necessity. The Taxpayer indicates that this Certificate states that the carrier is exercising its common carrier authority when conducting services to and from all points within Virginia. Finally, the Taxpayer indicates that in previous audits purchases for use in interstate, intrastate, and local business were reviewed but with no deficiencies found.
DETERMINATION
Code of Virginia § 58.1-609.3(3) provides an exemption from the tax for:
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- Tangible personal property sold or leased to a public service corporation engaged in business as a common carrier of property or passengers by motor vehicle or railway, for use or consumption by such common carrier directly in the rendition of its public service.
This statutory exemption is further addressed in Title 23 of the Virginia Administrative Code (VAC). Pursuant to 23 VAC 10-210-370 [formerly Virginia Regulation 630-10-24.3], "a common carrier must be authorized to operate under a certificate of convenience and necessity issued by the State Corporation Commission or the Interstate Commerce Commission in order to qualify for this exemption. This regulation applies only to common carriers of property by motor vehicle, including restricted common carriers, and has no application to contract or other carriers."
These provisions of the statute and regulations indicate that tangible personal property purchased for the Taxpayer's common carrier activities is exempt from the tax. Conversely, any tangible personal property purchased and used in any trucking operation outside the authority of the Taxpayer's certificates of convenience and necessity is subject to the tax. This application of the tax to exempt and taxable activities has been consistently applied by the department as addressed in the enclosed Public Documents 86-201 (10/17/86) and 92-28 (4/20/92).
Contract Carriage: While much of the Taxpayer's interstate carriage is provided under its common carrier authority, it is also clear that the Taxpayer operates as a contract carrier. In this regard, the Taxpayer provided transportation services to corporate customers through agreements for motor contract carriage. A representative agreement was provided to the auditor, and this document specifies that interstate transportation services are provided as a contract carrier. Also, the terms of the agreement satisfy the criteria for contract carriage set out in 49 U.S.C. § 10702© (for periods before January 1, 1996) and § 14101 of the ICC Termination Act of 1995 (effective January 1,1996).
Local Intrastate Carriage: Prior to January 1996, intrastate household goods carriers were governed under Title 56, Chapter 12.1 of the Code of Virginia. Pursuant to § 56-338.8, no person shall engage in motor vehicle transportation of household goods without first obtaining a certificate of convenience and necessity. An exclusion from this mandate, however, is provided under § 56-338.2© for:
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- Transportation of household goods ... between any points wholly within the limits of any city or town in this State, or for any lesser distance than thirty road miles.
The statutes set out in Chapter 12.1 were repealed effective January 1, 1996. At that time, regulation of motor vehicle carriage was transferred from the State Corporation Commission to the Department of Motor Vehicles under Title 46.2, Subtitle V of the Code of Virginia. The same exclusions regarding local household goods carriage, however, have been retained in the new statutes. See Code of Virginia § 46.2-2101(2).
Based on the above, those transportation services which are provided (1) under the local carriage exclusions or (2) under contract represent activities outside the statutory exemption set out in Code of Virginia § 58.1-609.3(3). The tangible personal property purchased by the Taxpayer and used to provide these services is therefore taxable. Further, because many of the contested items purchased by the Taxpayer were used in both exempt and taxable activities, the tax on these was prorated pursuant to 23 VAC 10-210-370(C).
Prior Audit: I have reviewed the prior audit report. It appears that the prior auditor assessed a prorated tax based on the Taxpayer's common carrier and contract carrier activities. It further appears that the assessment was based on a proration of taxable and exempt usage primarily of tangible personal property used by the Taxpayer in its storage and warehouse activities. The current audit examined the same type of purchases, but also reviewed purchases of motor vehicle repair parts. The current auditor recognized that the repair parts were not at issue in the previous audit, and therefore did not assess any penalty charges on their purchases. As noted above, however, in the discussion regarding contract carriage and local intrastate carriage, the tax applies to these repair parts on a prorated basis.
Based on this determination, the assessments are found to be correct. Revised assessments, with interest accrued to date, will immediately be sent to the Taxpayer. No additional interest will accrue provided the assessments are paid within 30 days.
If you have any questions regarding this letter, please contact **** in my Office of Tax Policy at******.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner